The nation's largest online payment service, PayPal, is paying New York $150,000 in penalties after misrepresenting to consumers its policy on repayment when merchandise doesn't arrive, the state attorney general said Monday.

PayPal, which claims 40 million customers worldwide, had specifically stated that it provided the same rights and protections of a traditional credit card transaction, said Attorney General Eliot Spitzer. But consumers were often denied those rights, he said. For example, consumers who didn't receive merchandise purchased through PayPal were often denied reimbursement from either PayPal or American Express or Discover credit cards. A spokeswoman for Spitzer said consumers complained they were being bounced between PayPal and their credit card companies and there was no prompt action.

The credit card firms agreed to properly credit consumers in an agreement with Spitzer late last year. PayPal creates accounts for buyers and sellers using the Internet, including PayPal's parent, eBay, the Internet auction site. The service lets buyers and sellers exchange money through e-mail. Besides the penalties, PayPal will pay New York state the investigation costs. The online payment service also will clearly describe consumer rights including conditions or limitations on their rights and refund policies.